Markets Pop on Coordinated Central Bank Report

Financial markets across North America turned sharply higher Thursday afternoon after a report that “central banks from the world’s major economies stand ready to take steps to stabilize financial markets and prevent a credit squeeze should the outcome of Greek elections on Sunday cause tumultuous trading.”

The story, published by Reuters, cited G20 officials, who are scheduled to meet in Mexico on Monday and Tuesday. There, the European sovereign debt crisis is expected to be at the top of the list of most discussed items.

Following the report’s release, U.S. equity markets extended their gains amid a surge in volume.  The Dow Jones Industrial Average (DJIA) climbed as much as 202.30 points, or 1.6%, to 12,698.68.  However, the Dow quickly gave up the majority of its late-day advance to trade higher by a respectable but considerably less 134.56 points at 12,630.94.

Gold futures rose modestly from $1,621 to $1,628 following the central bank news, but subsequently retreated back to $1,622 per ounce.

The Reuters story went on to say the following:

A senior U.S. official cautioned that the Greek election will not provide “the definitive signal on what happens next” in the euro zone debt crisis.

But if severe market strains emerge after an unusual confluence of three elections this weekend – there are important polls in Egypt and France as well – central bankers are on standby to ensure enough cash is flowing through the financial system.

“The central banks are preparing for coordinated action to provide liquidity,” said a senior G20 aide familiar with discussions among international financial diplomats. His statement was confirmed by several other G20 officials.

It could mark a dramatic backdrop to the G20 summit of world leaders who will gather in Los Cabos, Mexico, on Monday and Tuesday where Europe’s escalating crisis tops the agenda.

Leaders will be accompanied by finance ministers playing an advisory role. The ministers, who usually keep a low profile at these summits, have scheduled a working dinner on Monday and lunch on Tuesday.

Depending on the severity of the market response, an emergency meeting of ministers from the Group of Seven developed nations could be held on Monday or Tuesday in Los Cabos, with central bankers joining by phone, a second G20 official said.